Corporations Don’t Have The Same Rights That People Do
As Artificial Entities Created by the Government, Corporations Have No More Inherent Rights than a Toyota Camry
[NOTE: Instead of saying “Corporations, Limited Liability Companies and Limited Partnerships” every place in this column, I’m just going to use the word “corporation” to refer to any sort of limited liability legal entity.]
By David Grace (www.DavidGraceAuthor.com)
The Declaration of Independence famously said: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”
The founders were clear in their belief that human beings were inherently endowed by God with fundamental rights.
Corporations are not human beings. They were not created by God.
Corporations Are Artificial Entities Created By The State
Corporations are solely and completely artificial creatures of the State. They can only do those things that the government that created them says that they can do. They can be restricted, limited, banned, terminated or taxed as the State that created them decides, subject to their right to due process of law.
Corporations Have No Inherent Rights
As artificial entities created by the government, corporations have no more inherent rights than a Toyota Camry.
But wait, you say. What about the right of freedom of speech? In the Citizens United case didn’t the Supreme Court say that corporations had a constitutionally protected right to freedom of speech?
The Citizens United court noted that television, radio, and book and newspaper publishing were huge businesses that would usually be operated by corporations.
If the government could stop those corporations from creating and distributing books, newspapers, television and radio broadcasts, then the government could destroy the citizens’ right to receive a wide range of information concerning a vast number of political and social issues.
In short, the court held that denying a corporation’s right to freedom of speech and of the press would seriously infringe the public’s right to hear news and competing political and social opinions.
The Citizens United decision did not rest so much on any claim of an inherent corporate right of freedom of speech, but rather on the practical grounds that the lack of a corporate right of freedom of speech would materially damage the citizens’ complimentary inherent right to hear and to read.
Rights are not granted to corporations with the idea that by their very existence corporations are inherently entitled to those rights, but because taking them away from corporations would severely endanger the exercise of fundamental rights by human beings.
Choosing To Do Business As A Corporation Is A Voluntary Choice
No state is required to charter corporations. No one is required to do business as a corporation.
Investors make a voluntary decision to do business as a corporation instead of as a partnership or a sole proprietorship.
If people choose to get the benefits of operating their business as a corporation then they are also choosing to accept the limitations, restrictions and taxes that the state elects to impose on the corporations that it creates.
That’s the deal.
Investors Personally Liable For Non-Corporate Business Debts & Taxes
Investors Are Personally Liable For Non-Corporate Business’ Debts
Suppose we didn’t have corporations? Suppose all investors started their businesses by writing up a partnership contact governing how the company would be operated and how the profits would be divided.
If Enron, Toys-R-Us, PG & E, or any other bankrupt business had chosen not to operate as a corporation then all of their equity holders would have been personally liable for all of the company’s unpaid debts.
Investors Personally Liable For Non-Corporate Business Taxes
If a business is not operated as a corporate entity separate and apart from the investors, then all of its profits are treated as personally belonging to its investors and each investor must include his/her share of the profits as income on their personal tax return.
So, if I own a 1% interest in an unincorporated business that makes a million dollars in profits, then the company doesn’t itself owe or pay any income taxes. Instead, the business is me, and my $10,000 share of the $1,000,000 in profits appears on my personal tax return.
Moreover, I have to pay income taxes on that $10,000 even if the company never actually transfers any of that money into my personal bank account because I am deemed to be the equitable owner of my share of the profits of my company.
Investor Liability Encourages Good Behavior By The Business
Of course, the investors would be very nervous about how the executives were running the company because if the business did anything wrong, the investors would have to personally pay the bill.
If Purdue Pharma had been a general partnership, it likely never would have engaged in its scheme to flood the country with falsely advertised painkillers because the shareholders would never have allowed the company to expose them to those risks.
The benefit to the public from a business being operated as a partnership is that the fear of personal liability would motivate the investors to make damn sure that the company did things honestly and properly because their entire personal wealth would be on the line if it didn’t.
The Benefits Of Doing Business As A Corporation
No Personal Liability For Corporate Debt
A corporation is a separate legal entity from its investors and, as a separate entity, it, not the shareholders, is responsible for its debts.
No Personal Liability For Taxes On Corporate Profits
The corporation, not its shareholders, is responsible for the taxes on its business profits.
In electing to create a corporate entity that the State agrees is separate and apart from the investors, the investors escape any personal liability for taxes on the business’ profits and any personal liability for the corporation’s debts.
The Investors’ Choice: Personal Liability Or Corporate Regulation & Taxation?
In exchange for gaining personal immunity from any obligation to pay the company’s debts and immunity for any financial responsibility for any of the company’s wrongful conduct and bad business decisions and immunity from the payment of taxes on the company’s profits, the investors have to give up something, and what they give up is the ability to avoid the State’s corporation rules, regulations and taxes.
That’s the investors’ choice.
No Right To Complain About Corporate Regulations & Taxes
A human is born a human with all the rights that implies. That’s automatic.
A corporation is voluntarily created, which means that the investors choose to accept the consequences of that choice.
Corporations do all sorts of bad things and their investors and executives get to walk away with no personality responsibility for those costs.
In exchange for the State giving the company the ability to overcharge, pollute, build dangerous products, poison people, breach its obligations, etc. without any investor responsibility, the investors can elect to create an organization that is going to be subject to whatever corporate taxes the State elects to levy.
That’s the quid pro quo.
The corporation and its investors don’t get to both get the benefits of being a corporation and also the right to complain that the taxes imposed by the government that created it are an unfair theft of its money.
What you can’t do is get the benefit of operating your business as a corporation while avoiding the detriment of being governed and taxed however the State may choose to govern and tax corporations.
You don’t get to have your cake and eat it too.
That’s the deal.
Corporations Are Entities Without The Restrictions Of Ethics Or Empathy
Corporations are not people. They are not merely a group of human investors. They are independent entities, separate and apart from the humans who invested in them. That separation itself is exactly how the investors avoid liability for corporate debts and taxes.
Corporations are voluntarily-created, state-chartered, artificial entities with no empathy, no ethics and no goals beyond the limitless accumulation of ever more wealth no matter what cost that pursuit of wealth imposes on their employees, suppliers, customers or country.
The behavior of a public corporation is similar to that of a sociopath who pursues his personal goals unfettered by any empathy or concern for the welfare of others.
They deserve no deference, accomodation, charity or sympathy.
— David Grace (www.DavidGraceAuthor.com)